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Analysis of the relationship between the closing level of the market and the hi-lo range during the day

The chart below shows the frequency with which the index closes near to the high (or low) of the day. The data analysed is FTSE 100 Index daily data since 1985. The analysis first takes the day’s hi-lo range, and then calculates three threshold levels (1%, 5%, and 10%).

For example, if a day’s low is 50 and high is 70, then the Hi-Lo range would be 20. And the 1%, 5%, and 10% thresholds would 0.2, 1 and 2. The day would be said to close within 10% low of the day if the closing price was below 52. The day would be said to close within 5% of the high if the closing value was above 69.

For example, since 1985 the FTSE 100 Index has closed within 10% of its daily high on 20.8% of all days, and it has closed within 1% of its low 5.6% of all days.

An obvious observation to make is that the Index closes more often near its high of the day than the low. In nearly 1 in 10 days the index closes within 1% of the high of the day.

The effect on returns the following day

Continuing this analysis of where the index closes relative to the Hi-Lo range of the day, the following chart shows the performance of the FTSE 100 Index on the following day, split by where the index closed the previous day relative to that day’s Hi-Lo range.

For example, on the days when the index closes within 10% of its low for the day on average the index return is -0.005% the following day; and when the index closes within 1% of its high for the day on average the index return is 0.16% the following day.

As can be seen, the nearer the index closes to its high of the day, the higher the following day’s return. The other striking observation is that, whereas a close near the day’s high is associated with relatively strong returns the following day, a close near the day’s low has little effect on the average return the following day.

The above is an extract from the newly published UK Stock Market Almanac 2018.

This is a table showing the daily returns of the FTSE 100 Index for every day so far in 2017. Positive returns are highlighted in green, negative returns in red. (White cells indicate a market holiday.)

A couple of years ago the Almanac wrote about a strange characteristic of the UK equity market which was the difference in performance in odd and even weeks. The original article is here (see the original article for the definition of odd/even weeks etc.) To recap briefly, the FTSE 100 Index saw much stronger returns in odd weeks than even weeks.

Let’s see what’s happened recently and if this strange characteristic still exists.

The following chart shows the FTSE 100 average returns for odd and even weeks for the period 2010 to 2017, and also for the individual years 2016 and 2017 (to date).

As can be seen, for the period from 2010 the FTSE 100 has seen on average positive returns in odd weeks and negative returns in even weeks. In effect, for the last few years in aggregate all the growth in the index has been due to its performance in odd weeks.

In 2016, the market on average did see positive returns in even weeks (albeit still less than the odd-week returns). But so far in 2017 the longer-term trend has reasserted itself, with strong odd-week returns and negative even-week returns.

The following chart updates the performance of two hypothetical portfolios: one of which only invests in the market in odd weeks, and the other only invests in even weeks.

The significant divergence in performance previously observed has continued to today. Having started with values of 100 in 2010, by November 2017 the Odd Week Portfolio would have had a value of 187, compared with a value of 75 for the Even Week Portfolio. The change in value of the Even Week Portfolio has changed little from 2015, whereas the Odd Week Portfolio has grown strongly.

As mentioned in the original article, there is no obvious reason for this weekly phenomenon, although such weekly effects have been seen elsewhere – for example, the FOMC Cycle.

After market close on 30 August 2017 FTSE Russell confirmed the following changes to the FTSE 100 and FTSE 250 indices. The changes will be implemented at the close Friday, 15 September 2017 and take effect from the start of trading on Monday, 18 September 2017.

After market close on 1 March 2017 FTSE Russell confirmed the following changes to the FTSE 100 and FTSE 250 indices. The changes will be implemented at the close Friday, 17 March 2017 and take effect from the start of trading on Monday, 20 March 2017.